American Dairy Annouces Midquarter Update

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American Dairy, Inc. (OTCBB:ADIY - News), one of the leading distributors and producers of milk powder, soybean powder and related dairy products, announces that they are on pace to hit their year-end net earnings projection of $6 million.

American Dairy, Inc. (OTCBB:ADIY - News), one of the leading distributors and producers of milk powder, soybean powder and related dairy products, announces that they are on pace to hit their year-end net earnings projection of $6 million.

In accordance with general accepted accounting principles (GAAP), estimated sales revenue will be adjusted from $48 million to approximately $36 million; the reduction is result of deductions made from the combination of inter-company sales and value added taxes (VAT) (13% or 17%, depending on the type of product sold).

American Dairy, for the nine months ended September 30, 2004, reported sales revenue of $26,788,404 and net income of $3,879,822. In 2003, American Dairy reported year end sales of $19,059,357 and net income of $2,036,807. All audited financial statements filed with the SEC following and including Form 10-KSB 2003, reflect (VAT) (17%) and inter-company sales was eliminated (against sales rather than other income where it was included in 2003). However, there is no effect on profit as a result of the elimination.

American Dairy expects a strong fourth quarter due to: (1) year-end marketing efforts; (2) higher birth rates during the 4th quarter; and (3) the general increase of Chinese consumption of dairy products in these last three months of the year.

The Provisional Regulations of the PRC Concerning Value Added Tax promulgated by the State Council came into effect on January 1, 1994. Under these regulations and the Implementing Rules of the Provisional Regulations of the PRC Concerning Value Added Tax, value added tax is imposed on goods sold in or imported into the PRC and on processing, repair and replacement services provided within the PRC.

Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13% or 17% (depending on the type of goods involved) on the full price collected for the goods sold or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable services provided, but excluding, in respect of both goods and services, any amount paid in respect of value added tax included in the price or charges, and less any deductible value added tax already paid by the taxpayer on purchases of goods and services in the same financial year. The Heilongjiang Province has agreed to rebate its 40% of all value added taxes due by the Company for a period of five years. Any rebates are treated as reductions in cost of goods sold for financial reporting purposes.

The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain of the statements made herein constitute forward-looking statements that involve risks and uncertainties. In such instances, actual results could differ materially as a result of a variety of factors including the risks associated with the effect of changing economic conditions at home and abroad, variations in cash flow, reliance on collaborative retail partners, and on new product development, variations in new product and service development, risks associated with rapid technological change, and potential of introduced or undetected flaws and defects in products and services and other risk factors detailed in forms filed with the Securities and Exchange Commission from time to time.

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Mathew Wang
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